LEONARD LUMBER REPORT: A FEW TAKEAWAYS FROM THE FUTURES TRADE LAST WEEK
Summary: Futures and Cash
There were a few takeaways from the futures trade last week. The first is the fact that July liquidated somewhat orderly, at least by lumber standards. That will lead to more confidence in using the new contract. The other feature was data that showed a lot of the Friday to Tuesday run-up was caused by short fund liquidation. It wasn’t the only reason but most likely was the catalyst for the sharp run-up Monday. The futures market hit fund stops. As of Tuesday, they were now carrying just 700 contracts and that number could be less. If you remember they were the catalyst last January of that sharp run-up. They liquidated most of their position and then a few weeks later were selling again with both hands. Let’s watch for a rerun.
This last rally was a short covering and fill-in run. They were no major data points to set it off. That said, there is only positive economic data coming out for housing. The starts are out on Wednesday. If the marketplace can hold the demand, prices are going higher. The mills are focused on three things, getting back to breakeven, making a profit, and then running it back up to $800. Let’s get it to breakeven first before we chat about the others.
Technical:
The technical read hasn’t been an outright buy throughout this whole run. It showed a few positives but more signals not to be short. The rally started in early June. It now has a very healthy support line sitting at $552. To trade down there and hold would be expected. Now on the flip side, I have been a proponent of getting long over $600 expecting a sharp spike caused by fund buy stops. With their position much smaller, I would not expect to see that occur. Selling in front of $598.20 against inventory is now back in play. Everything else is neutral.
Lumber Futures Volume & Open Interest
CFTC Commitments of Traders Long Report
https://www.cftc.gov/dea/futures/other_lf.htm
Lumber & Wood Pulp Options
https://www.cmegroup.com/daily_bulletin/current/Section23_Lumber_Options.pdf
About the Leonard Report:
The Leonard Lumber Report is a column that focuses on the lumber futures market’s highs and lows and everything else in between. Our very own, Brian Leonard, risk analyst, will provide weekly commentary on the industry’s wood product sectors.
Brian Leonard
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